Bonds open modestly weaker Wednesday: 10-year at 4.796%, up 4 bps from Tuesday's close, UMBS 5.5 at 98.72 and 6.0 at 100.91, both down a few cents. Rates hold at 6.89% on the lender sheet, though Tuesday's afternoon sell-off means some desks start the day with less room than those numbers suggest.
Tuesday's tape ran in reverse without a data catalyst. Bonds rallied at the open after Labor Day, held through midday, then sold steadily from noon through the close — a 12-cent loss for UMBS 5.5 and the 10-year pushing back above 4.79% from its morning low near 4.77%. Two reprice-risk alerts went out during the afternoon. That is not the behavior of a market with conviction beneath it. It is a market drifting toward caution ahead of two inflation reports this week, neither of which it wants to front-run in the wrong direction.
PPI Thursday and CPI Friday are the week's two decision points. Both prints soft and the bond market gets room to improve heading into the September 16 FOMC meeting. Either print hot and the case for holding at September 16 versus hiking tilts toward hiking — and yields follow quickly. The Fed's last clear public signal on the record is Governor Waller's argument for holding steady, with Chair Warsh's Jackson Hole remarks pulling in the opposite direction. August payrolls — 162,000 jobs added, unemployment at 4.1% — cleared any remaining expectation of a September cut. They did not put a hike on the table. The inflation data this week does or doesn't.
For borrowers, 6.89% has been the ceiling of this summer's range since early August, and Tuesday's session provided no relief. Wednesday's open is not offering any either. Borrowers who have been approved and have a home under contract are working a 48-hour window before the data removes the ambiguity: a soft read on both reports could pull the 30-year toward 6.75% before the FOMC; a hot read on either could push it toward 7.10% just as quickly. That is not a small range, and the direction is determined by Thursday morning and Friday morning — not by today's tape.
PPI prints Thursday, September 10. CPI prints Friday, September 11. FOMC decides September 16.
— David Burson, NetRate Mortgage